Opinion – From Grain to Grain: Three advantages that you can’t give up in your portfolio this year-end

As soon as I started working as a fixed income fund manager in 1999, one of the first products I was responsible for were some PGBL-type plans. I felt privileged and at the same time with a great responsibility. My decisions would impact the retirement of many investors. I am very proud of that time and I know that there are even more reasons today to invest in this type of product. I comment below three of these reasons.

At this moment, you should pay even more attention to this product, as there are only two weeks left for you to enjoy one of its great advantages. If you make a complete income tax return and have taxable income, do not give up these advantages.

Pension plans recognized by their initials, PGBL, have evolved and today should be considered in your investment portfolio. In the past, the product’s lack of appeal was justified by two reasons: high rates and products with low profitability and little specialization.

The growth of competition in the insurance sector and the greater financial awareness of investors drove the movement to lower rates and the search for product improvements.

Loading fees – charging a percentage of the amount contributed or redeemed – were abolished. Additionally, the high management fees that made the products less advantageous than similar investment funds were reduced and in many cases equaled to those of similar funds.

Another factor that has revolutionized is the growing number of specialist managers who have replicated their strategies in these products. About ten years ago, only investors in the segment private – people with a few million to invest – had access to these independent managers.

The first popularization movement came with brokers distributing investment funds from these unknown managers and allowing small investors to have access. Insurance companies also adhered to the greater diversification of distributed products, allowing investors to invest in pension plans with products managed by recognized managers.

Now that the biggest drawbacks have been mitigated, the benefits of pension products stand out. Thus, there are three reasons that justify its portfolio having private pension products of the PGBL type.

This is one of the most efficient ways to leave resources for heirs.

You probably know someone whose family has had problems receiving or dividing financial assets following the death of a relative.

VGBL and PGBL products, as they are classified as insurance, do not go into inventory and in most parts of the country they are not subject to taxation on transfer of property by inheritance.

Thus, the succession of these financial resources becomes faster for the family, as it has already been previously divided and is free from the problems of the inventory process. In this way, the cost of lawyers is avoided, which can reach 10% of the equity, according to the table suggested by the OAB.

In addition, the Causa Mortis and Donation Transfer Tax (ITCMD) is saved, which can reach 8%. Only a few Brazilian states have an injunction to collect this tax on pension products.

Therefore, in addition to the higher reception speed, it is possible to achieve savings of up to 18%, if the two costs above are considered.

Therefore, the profitability of traditional alternatives needs to present a much higher return to match this advantage of a pension plan.

Some imagine that, as they get older or have serious health problems, they should withdraw resources from VGBLs or PGBLs, but it is exactly the opposite. The profitability gap mentioned above grows over time. If the relative’s death were to occur in ten years, traditional alternatives would need to yield up to 120% per year of the appreciation of a VGBL or PGBL.

With the increase in the possibility of death, which comes with age or illness, it is recommended that a larger portion be reverted to pension products as a form of succession planning. To the point that if the death were to occur tomorrow, today all your resources should be in a VGBL or PGBL.

This is one of the most efficient financial vehicles when it comes to tax savings.

There are three tax advantages in pension products: absence of quota eaters and the possibility of the IR rate falling to 10% and postponement of IR in case of portability.

VGBL and PGBL products are similar to investment funds, but unlike fixed-income or multimarket FIs, VGBLs and PGBL do not have a half-yearly income tax advance, called a quota come-on.

In a horizon of up to 10 years, the absence of quota eaters does not make much difference, but in the long term it is significant. In thirty years, assuming that two investments have a return equal to the current CDI, the investment without a quota start will result in a value, net of income tax, up to 20% higher.

This means that, in the long run, the same savings effort will result in more result if you use private pension products.

There are two tax regimes for pension products. In the simplest case, called regressive or definitive, the IR rate drops by up to 10% in ten years.

Remember that traditional investments such as funds, government bonds and shares have a minimum rate of 15% on earnings. Therefore, it is possible to save an additional 5% on pension products.

For those who make the full declaration, the benefit that the PGBL brings is even greater. In addition to the lower tax advantage mentioned above, you postpone the payment of part of the IR on your salary and even reduce the incident rate by almost half. However, the cost advantages are not just on the tax side.

Most pension products, even hedge funds and stocks, do not have a performance fee. Until last year, these products were not allowed to have this charge. Thus, the manager can take less risk on the product to give the same result as a fund with this rate.

Finally, if you carry out portability between pension products, you do not pay income tax on earnings. This postponement of the IR, as well as with quota eaters, brings enormous benefits in the long term.

It disciplines the investor to think in the long term.

The biggest villain, responsible for individuals not being able to accumulate equity until retirement, is the lack of discipline. Unfortunately, we are naturally procrastinators and immediateists.

We postpone the decision to start saving and prefer to consume all of the monthly income today without leaving anything for retirement savings.

Just as the purchase of a property is a relevant factor for the formation of financial assets, as it forces you to pay a loan and does not allow you to sell, pension plans can have the same effect, but with a complementary advantage.

Joining a pension plan means that part of your income is automatically allocated to this reserve, so it is just as disciplinary as real estate financing.

However, unlike real estate financing that makes you pay twice the value of the property, long-term investment in a pension allows you to have twice as much as you put in.

With all these advantages, the private pension vehicle is fundamental in everyone’s financial planning. However, it is still necessary to carry out research to choose the best products and verify the adequacy of the investor profile to the selected plan before making any investment.

Michael Viriato is an investment advisor and founding partner of Investor House

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